What is a short sale?
In the world of real estate, a short sale refers to the sale of real property for an amount less than the amount owed on the property. In the short sale scenario, the bank agrees to accept less than the full balance due on the debt, and usually “forgives” all or a large portion of the difference.
How will the short sale affect my credit?
Short sales are still a relatively new concept. Banks have the option of submitting the short sale to the credit bureau as “Paid in Full” or “Settled for less than full balance”. As far as your credit score is concerned, there is no evidence whatsoever to support that a short sale will lower your credit score. Some have the idea that this is like a bankruptcy or a foreclosure. That’s far from the truth! In a short sale, the lender is simply allowing you to pay less than you owe!
If you are currently behind on your mortgage or facing foreclosure, the short sale will actually help your credit! How? Because once you are approved for the short sale, all collection activity will STOP and you will avoid foreclosure!
Who benefits from the short sale?
Short sales are a win-win situation. Lenders, mortgagees, and real estate agents all benefit from the successful short sale. Mortgagors get the majority of their money back, Mortgagees get the relief they need and are able to sell their property and avoid foreclosure, and real estate agents can facilitate the transaction and receive compensation (commission) from the sale of the property.
Why would banks forgive the difference?
To mitigate their losses, banks often accept a settlement of less than what is owed on the property. When faced with the option of getting the property “back” through foreclosure, a short sale often makes a much wiser business decision for the bank.
This sounds too good to be true!?
Not really. Things that are “too good to be true” usually don’t make good economic sense. The short sale makes good common and financial sense for the banks who grant them. The fact of the matter is mortgage companies and banks are NOT in the real estate business. They are in the LENDING business. The last thing they want is that property back.
Can FHA, Conventional or VA loans receive a short sale?
Yes! I have successfully negotiated short sales for each of these loan types.